PSU steel major Steel Authority of India Ltd (SAIL) sold over 530,000 t of iron ore at auctions in May’21 from mines under the company’s Raw Materials Division in Odisha and those under the Bhilai Steel Plant in Chhattisgarh, as per data available with SteelMint.
May’21 iron ore sales rose manifold compared to just 40,000 t in Apr but edged lower vis-a-vis more than 850,000 t in Mar. As per SteelMint assessment, SAIL has sold 5.27 mn t of iron ore since the commencement of sales at auctions from the company’s Bolani mine in May’20.
Iron ore sales at auctions from the Bolani and Barsua mines in Odisha were recorded at 408,000 t in May’21 – over 76% of total sales in the month. The Dalli and Rajhara mines in Chhattisgarh witnessed total sales at 124,000 t in May.
Auctions from Odisha resume
The dramatic decline in Apr’21 sales was due to non-allocation from SAIL’s iron ore mines in Odisha due to confusion regarding payment of an additional amount under MMDR Amendment Act, 2021. SAIL officials had informed SteelMint in early-May’21 that the confusion was whether the additional amount to be levied would be at 150% or 250% of royalty. Royalty for iron ore fines sales is pegged at 150% by the Union Ministry of Mines (MoM).
Moreover, in mid-May, the Odisha government issued directions to SAIL to halt all merchant dispatches of iron ore owing to discrepancies in mining operations of dump fines, while allowing the state-owned steelmaker to continue ore dispatches for captive consumption.
However, the MoM later issued a clarification reconfirming the permission granted to SAIL for sale of 25% of total mineral production recorded in the previous year under MMDR Act, 1957. Also, the company was allowed to sell 50% of its current year’s iron ore production, as per the provisions of the newly-introduced section 8A (7A) of MMDR Act. For mineral sales taking place after 28 Mar’21, however, SAIL was asked to pay the applicable additional charge, as per the Sixth Schedule of the MMDR Amendment Act. Following this order, the steel major resumed iron ore auctions from its Odisha mines on 25 May.
Firm demand, supply concerns fuel prices
As per SteelMint reports, SAIL conducted an auction for high-grade material from its Bolani mine in Odisha after a gap of two months on 25 May for 136,000 t of fines (Fe 62.5%). The entire quantity received bids at INR 9,000-9,010/t, (loaded, including Royalty, DMF, NMET as well as the additional premium as per MMDR Amendment Act, 2021).
SteelMint’s Odisha iron ore fines (Fe 62%) index rose by INR 250/t to INR 9,150/t (ex-mines, including Royalty, DMF & NMET) on 5 Jun’21, with leading merchant miners such as Essel Mining hiking iron ore fines offers by INR 700/t.
Iron ore prices have increased significantly compared to SAIL’s previous auction held from Bolani on 20 Mar’21 which saw 64,000 t of Fe 62.5% fines receiving bids at INR 4,260-4,280/t (excluding royalty) – almost INR 4,800/t lower than current prices! Likewise, the recent auction for Fe 60.9% ore from Chhattisgarh’s Rajhara mine received bids at INR 6,760/t vis-a-vis INR 4,600/t for similar grade material in Apr’21.
Outlook
The sharp rise in prices can be explained by the persistent shortage of high-grade iron ore in the Odisha market coupled with rising charges due to higher statutory payments under the MMDR Amendment Act for merchant iron ore sales by government companies such as SAIL. Impending expiry of key merchant iron ore leases in Odisha has created an apprehension of supply shortage in the market that is expected to keep prices firm in the short term, SteelMint notes. In addition, high steel and iron ore pellet prices due to strong domestic and stronger export demand are fuelling the rally, it is believed.
However, contrary to expectations, India’s leading iron ore miner NMDC has kept Jun’21 prices unchanged which has come as a great relief to many secondary steel producers. This could go some way in putting brakes on the rally in iron ore and steel prices.
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